SENTIMENTS Angeletos, George-Marios; La'O, Jennifer
Econometrica,
March 2013, Letnik:
81, Številka:
2
Journal Article
Recenzirano
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This paper develops a new theory of fluctuations—one that helps accommodate the notions of "animal spirits" and "market sentiment" in unique-equilibrium, rational-expectations, macroeconomic models. ...To this goal, we limit the communication that is embedded in a neoclassical economy by allowing trading to be random and decentralized. We then show that the business cycle may be driven by a certain type of extrinsic shocks which we call sentiments. These shocks formalize shifts in expectations of economic activity without shifts in the underlying preferences and technologies; they are akin to sunspots, but operate in unique-equilibrium models. We further show how communication may help propagate these shocks in a way that resembles the spread of fads and rumors and that gives rise to boom-and-bust phenomena. We finally illustrate the quantitative potential of our insights within a variant of the RBC model.
Gresham's Law of Model Averaging Cho, In-Koo; Kasa, Kenneth
The American economic review,
11/2017, Letnik:
107, Številka:
11
Journal Article
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A decision maker doubts the stationarity of his environment. In response, he uses two models, one with time-varying parameters, and another with constant parameters. Forecasts are then based on a ...Bayesian model averaging strategy, which mixes forecasts from the two models. In reality, structural parameters are constant, but the {unknown) true model features expectational feedback, which the reduced-form models neglect. This feedback permits fears of parameter instability to become self-confirming. Within the context of a standard asset-pricing model, we use the tools of large deviations theory to show that even though the constant parameter model would converge to the rational expectations equilibrium if considered in isolation, the mere presence of an unstable alternative drives it out of consideration.
A large body of empirical evidence suggests that beliefs systematically deviate from perfect rationality. Much of the evidence implies that economic agents tend to form forecasts that are excessively ...influenced by recent changes. We present a parsimonious quasi-rational model that we call natural expectations, which falls between rational expectations and (naïve) intuitive expectations. (Intuitive expectations are formed by running growth regressions with a limited number of right-hand-side variables, and this leads to excessively extrapolative beliefs in certain classes of environments). Natural expectations overstate the long-run persistence of economic shocks. In other words, agents with natural expectations turn out to form beliefs that don't sufficiently account for the fact that good times (or bad times) won't last forever. We embed natural expectations in a simple dynamic macroeconomic model and compare the simulated properties of the model to the available empirical evidence. The model's predictions match many patterns observed in macroeconomic and financial time series, such as high volatility of asset prices, predictable up-and-down cycles in equity returns, and a negative relationship between current consumption growth and future equity returns.
► We present a new approach of crowd motion modeling that is based on mean field games. ► Pedestrians are modeled as smart entities that optimize their strategy. ► Main novelties are the ...forward-backward structure describing the crowd dynamics, and the individuals’ expectations. ► We discuss interactions between two crowds, focusing on aversion and congestion. ► We provide numerical solvers; first numerical results confirm the expected behavior like lane formation.
In this paper we present a new class of pedestrian crowd models based on the mean field games theory introduced by Lasry and Lions in 2006. This macroscopic approach is based on a microscopic model, that considers smart pedestrians who rationally interact and anticipate the future. This leads to a forward-backward structure in time. We focus on two-population interactions and validate the modeling with simple examples. Two complementary classes of problems are addressed, namely the case of crowd aversion and the one of congestion. In both cases we describe the model and present numerical solvers (based on the optimization formulation and the partial differential equations respectively). Finally we present numerical tests involving anticipation phenomena and complex group behaviors such as lane formation.
The basic idea of importance sampling is to use independent samples from a proposal measure in order to approximate expectations with respect to a target measure. It is key to understand how many ...samples are required in order to guarantee accurate approximations. Intuitively, some notion of distance between the target and the proposal should determine the computational cost of the method. A major challenge is to quantify this distance in terms of parameters or statistics that are pertinent for the practitioner. The subject has attracted substantial interest from within a variety of communities. The objective of this paper is to overview and unify the resulting literature by creating an overarching framework. A general theory is presented, with a focus on the use of importance sampling in Bayesian inverse problems and filtering.
This paper addresses the question: how sensitive is the power of fiscal policy at the Zero Lower Bound (ZLB) to the assumption of rational expectations? We do so through the lens of a standard New ...Keynesian model in which people are dynamic level-k thinkers. Our analysis weakens the case for using government spending to stabilize the economy when the ZLB binds. The less sophisticated people are, the smaller the government-spending multiplier is. Our analysis strengthens the case for using tax policy to stabilize output when the ZLB is binding. The power of tax policy to stabilize the economy during the ZLB period is essentially undiminished when agents do not have rational expectations. Our results are robust to whether or not Ricardian equivalence holds. Finally, we show that the way in which tax policy is communicated is critical to its effectiveness.
I present an approach to static equilibrium modeling with non-rational expectations, which is based on enriching players' typology. A player is characterized by his “data access”, consisting of: (i) ...“news access”, which corresponds to a conventional signal in the Harsanyi model, and (ii) “archival access”, a novel component representing the player's piecemeal knowledge of steady-state correlations. Drawing on prior literature on correlation neglect and coarse reasoning, I assume the player extrapolates a well-specified probabilistic belief from his “archival data” according to the maximum-entropy criterion. I show with a series of examples how this formalism extends our ability to represent and analyze strategic interactions without rational expectations.
Why is this type of modelling not welldeveloped in economics? Because of historical choices made to address the complexity of the economy and the importance of human reasoning and adaptability. A ...thorough attempt to understand the whole economy through agent-based modelling will require integrating models of financial interactions with those of industrial production, real estate, government spending, taxes, business investment, foreign trade and investment, and with consumer behaviour.
Celotno besedilo
Dostopno za:
DOBA, IJS, IZUM, KILJ, NUK, PILJ, PNG, SAZU, SIK, UILJ, UKNU, UL, UM, UPUK
We employ a noisy rational expectations equilibrium model to investigate the influence of relative wealth concerns on wealth gap and welfare. Our analysis reveals that the impact is sensitive to the ...exogeneity or endogeneity of information. When information is exogenous, the average wealth gap between high-precision and low-precision investors is either decreasing or, initially decreases and eventually increases in the degree of relative wealth concerns. Moreover, we identify two or three potential patterns regarding the monotonicity pattern of the welfare of low-precision and high-precision investors. However, when information becomes endogenous, the average wealth gap and welfare decrease.
•The impact is sensitive to the exogeneity or endogeneity of information.•The impact may be not monotonic in the case of exogenous information.•The impact is monotonic in the case of endogenous information.
The economic agents’ perception of the monetary policy might not coincide with the central bank conduct. We investigate this issue by using both actual and expected data identified by professional ...forecasters for Brazil, an emerging economy that has long adopted the inflation-targeting regime. We estimate observed, expected, and forward-looking interest rate rules, apply Full-Information Rational Expectations (FIRE) tests, assess restrictions implied by models of information rigidity, and perform several robustness checks. The estimated policy rules respond to inflation deviations and output gap according to theoretical grounds. Professional forecasters, however, do not believe in aggressiveness to fight inflation in longer forecasting horizons, while FIRE tests unveil information rigidity in the short run. There is a misalignment between the Central Bank practice and the private agents’ perception of the monetary policy in the long but not in the short run, suggesting unanchored long-term inflation expectations.
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